INVESTING BASICS. A. THE STOCK MARKET STOCKS- UNIT OF OWNERSHIP IN A CORPORATION. STOCKS EXPLAINED.

INVESTING BASICS

A. THE STOCK MARKET

• STOCKS- UNIT OF OWNERSHIP IN A CORPORATION.

STOCKS EXPLAINED

http://www.investopedia.com/terms/s/stockmarket.asp

A. THE STOCK MARKET

• STOCKS- UNIT OF OWNERSHIP IN A CORPORATION.

STOCKS EXPLAINED

• STOCK MARKET- WHERE STOCKS ARE TRADED.

• EITHER THROUGH AN EXCHANGE OR OVER THE COUNTER

http://www.investopedia.com/terms/s/stockmarket.asp

B. THE STOCK EXCHANGE

• EXCHANGE- A PHYSICAL LOCATION WHERE STOCKS ARE TRADED.



• NEW YORK STOCK EXCHANGE (NYSE)

• LOCATED ON WALL STREET

• WORLD’S LARGEST STOCK EXCHANGE

• NASDAQ- THE WORLD’S 1ST ELECTRONIC STOCK EXCHANGE, FOUNDED IN 1971.



• NEW YORK STOCK EXCHANGE (NYSE)

• LOCATED ON WALL STREET

• WORLD’S LARGEST STOCK EXCHANGE

• NASDAQ- THE WORLD’S 1ST ELECTRONIC STOCK MARKET, FOUNDED IN 1971

• OVER THE COUNTER- WHEN STOCKS ARE TRADED BY DEALER NETWORKS, NOT ON EXCHANGE FLOORS

• TYPICALLY SMALLER STOCKS

• LESS REGULATION

• CHEAPER THEN TRADING ON EXCHANGES

• OVER THE COUNTER EXPLAINED

http://www.investopedia.com/video/play/trading-over-counter/

C. STOCK PRICE

• THE PRICE PER SHARE

C. STOCK PRICE


• AN INVESTMENT BANK DETERMINES A CORPORATIONS ORIGINAL STOCK PRICE BY EVALUATING THEIR VALUE BEFORE THE IPO.

C. STOCK PRICE



• IPO (INITIAL PUBLIC OFFERING)- WHEN A COMPANY CAN START SELLING STOCKS.

C. STOCK PRICE



• IPO (INITIAL PUBLIC OFFERING)- WHEN A COMPANY CAN START SELLING STOCKS.

• AFTER IPO, PRICE IS DETERMINED BY THE SUPPLY AND DEMAND OF THE STOCK IN THE MARKET.

D. CAPITAL GAINS

• SELLING PRICE – PURCHASE PRICE= YOUR CAPITAL GAIN.

• FOR EXAMPLE:

• BUY 1 STOCK OF YAHOO STOCK AT $30.

• SELL AT $40

• CAPITAL GAIN = $10

E. STOCK INDEX

• AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET.

E. STOCK INDEX


• FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ.

E. STOCK INDEX



• MEASURES THE CUMULATIVE GROWTH

E. STOCK INDEX




• EXAMPLES:

E. STOCK INDEX




• EXAMPLES:

• DOW JONES- CONSISTS OF 30 LARGE CAP US CORPORATIONS

E. STOCK INDEX




• NASDAQ COMPOSITE- AN INDEX OF ALL STOCKS THAT ARE SOLD ON NASDAQ

E. STOCK INDEX




• WILSHIRE 5000- COMPRISED OF OVER 6700 STOCKS.

E. STOCK INDEX




• WILSHIRE 5000

• REQUIREMENTS:

• 1. THE COMPANIES ARE HEADQUARTERED IN THE UNITED STATES.

E. STOCK INDEX




• WILSHIRE 5000

• REQUIREMENTS:

• 1. THE COMPANIES ARE HEADQUARTERED IN THE UNITED STATES.2. THE STOCKS ARE ACTIVELY TRADED ON AN AMERICAN STOCK EXCHANGE.

E. STOCK INDEX




• WILSHIRE 5000

• REQUIREMENTS:

• 1. THE COMPANIES ARE HEADQUARTERED IN THE UNITED STATES.2. THE STOCKS ARE ACTIVELY TRADED ON AN AMERICAN STOCK EXCHANGE.3. THE STOCKS HAVE PRICING INFORMATION THAT IS WIDELY AVAILABLE TO THE PUBLIC.

F. MARKET CAP

• MARKET CAP- NUMBER OF OUTSTANDING SHARES X (TIMES) THE PRICE PER SHARE

F. MARKET CAP


• FOR EXAMPLE: YAHOO INC HAS 140 MILLION SOLD SHARES X $30 PER SHARE = A MARKET CAP OF $4.2 BILLION

F. MARKET CAP



• IN GENERAL THE LARGER THE MARKET CAP THE LARGER AND SAFER THE STOCK.

F. MARKET CAP



• IN GENERAL THE LARGER THE MARKET CAP THE LARGER AND SAFER THE STOCK.

• LARGE CAP = $10 BILLION+

• MID CAP = $2-10 BILLION

• SMALL CAP = LESS THEN $2 BILLION

MARKET CAP EXPLAINED

http://www.investopedia.com/terms/m/marketcapitalization.asp

G. PRICE TO EARNINGS RATIO (P/E RATIO)

• SHARE PRICE DIVIDED BY EARNINGS PER SHARE


• SHARE PRICE/EARNINGS PER SHARE

• FOR EXAMPLE: SHARE PRICE IS $30 AND EARNINGS PER SHARE IS $2 THEN YOU HAVE A P/E RATIO OF 15.



• FOR EXAMPLE: SHARE PRICE IS $30 AND EARNINGS PER SHARE IS $2 THEN YOU HAVE A P/E RATIO OF 15

• THE HIGHER THE P/E RATIO THE MORE YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (BAD)





• THE LOWER THE P/E RATIO THE LESS YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (GOOD)

G. PRICE TO EARNINGS RATIO (P/E RATIO)• SHARE PRICE/EARNINGS PER SHARE



• THE LOWER THE P/E RATIO THE LESS YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (GOOD)

• IMPORTANT TO COMPARE A BUSINESS’S P/E RATIO TO OTHER LIKE BUSINESSES.

PE RATIO

http://www.investopedia.com/university/peratio/peratio1.asp

H. BETA

• MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET.

H. BETA


• BETA OF 1 = PRICE MOVES WITH MARKET

H. BETA



• BETA LESS THEN 1 = LESS VOLATILE THEN THE MARKET (SAFE)

• UTILITY STOCKS

H. BETA




• UTILITY STOCKS

• GREATER THEN 1 = MORE VOLATILE THEN THE MARKET. (HIGHER RISK AND HIGHER REWARD)

• TECHNOLOGY STOCKS

• PHARMACEUTICALS

H. BETA




• UTILITY STOCKS



• PHARMACEUTICALS

EXAMPLE: BETA OF 2 MEANS A STOCK IS LIKELY TO CHANGE 100% MORE THEN THE MARKET.

H. BETA




• UTILITY STOCKS



• PHARMACEUTICALS


SO, IF MARKET IMPROVES BY 10%, THIS STOCK WILL INCREASE BY 20%.

H. BETA




• UTILITY STOCKS



• PHARMACEUTICALS


SO, IF MARKET IMPROVES BY 10%, THIS STOCK WILL INCREASE BY 20%.

IF MARKET DECREASES BY 10% THIS STOCK WILL DECREASE BY 20%.

BETA DEFINED

http://www.investopedia.com/terms/b/beta.asp

I. MUTUAL FUNDS

I. MUTUAL FUNDS

• AN INVESTMENT MADE UP OF A POOL OF FUNDS COLLECTED FROM MANY INVESTORS FOR THE PURPOSE OF INVESTING IN SECURITIES. (STOCKS AND BONDS).

I. MUTUAL FUNDS


• A PROFESSIONALLY MANAGED PORTFOLIO

I. MUTUAL FUNDS



• YOUR MONEY GROWS AT THE RATE OF THE FUNDS GROWTH

I. MUTUAL FUNDS

• AN INVESTMENT MADE UP OF A POOL OF FUNDS COLLECTED FROM MANY INVESTORS FOR THE PURPOSE OF INVESTING IN SECURITIES (STOCKS AND BONDS).


• YOUR MONEY GROWS AT THE RATE OF THE FUNDS GROWTH

• MUTUAL FUNDS

http://www.investopedia.com/video/play/introduction-mutual-funds/

J. BONDS

• BONDS-RECEIVED WHEN INVESTOR LENDS MONEY TO A BUSINESS OR GOVERNMENT.

J. BONDS


• BUSINESS OR GOVERNMENT AGREES TO PAY BACK LOAN PLUS INTEREST OVER A PERIOD OF TIME.

J. BONDS



• WHEN YOU BUY BONDS YOU ARE ACTING LIKE A BANK

J. BONDS



• WHEN YOU BUY BONDS YOU ARE ACTING LIKE A BANK

• BONDS ARE TYPICALLY LESS RISKY

• BONDS

http://www.investopedia.com/video/play/understanding-bonds/

K. SHORT SELLING

• SELLING OF A SECURITY WHEN YOU DO NOT ACTUALLY OWN IT.

K. SHORT SELLING

• STEP1: YOU BORROW SHARES OF STOCK

EXAMPLE:

STEP 1: BORROW 100 NKE STOCK AT $100 A SHARE.

K. SHORT SELLING


• STEP 2: SELL THEM AT THE CURRENT MARKET PRICE.

EXAMPLE


STEP 2: SELL 100 SHARES AT $100 A SHARE = $10,000 IN YOUR POCKET.

K. SHORT SELLING




• STEP 3: YOUR LENDER ASKS FOR THEIR STOCKS BACK

EXAMPLE:



STEP 3: DAYS, WEEKS, OR MONTHS LATER YOUR LENDER ASKS FOR THEIR 100 NKE SHARES BACK.

K. SHORT SELLING





• STEP 4: YOU BUY THEM BACK FROM THE MARKET AT HOPEFULLY A LOWER PRICE THEN WHAT YOU SOLD THEM.

EXAMPLE:



STEP 3: DAYS, WEEKS, MONTHS LATER YOUR LENDER ASKS FOR THEIR 100 NKE SHARES BACK.

STEP 4: YOU REPURCHASE NKE SHARES FROM THE MARKET TO GIVE BACK YOU YOUR LENDER AT $90 A SHARE. (YOUR COST $9,000)

K. SHORT SELLING

SUMMARIZED:

BORROWED AND SOLD AT $10,000 (CASH IN HAND)

REPURCHASED AT $9,000 (CASH OUT OF HAND)

CASH LEFT IN HAND $1,000

K. SHORT SELLING

SUMMARIZED:

BORROWED AND SOLD AT $10,000 (CASH IN HAND)

REPURCHASED AT $9,000 (CASH OUT OF HAND)

CASH LEFT IN HAND $1,000

NOTE: THERE ARE FEES AND INTEREST PAYMENTS ASSOCIATED WITH SHORT SELLING.

SHORT SELLING EXPLAINED

http://www.investopedia.com/terms/s/shortselling.asp

K. SHORT SELLING





• STEP 4: YOU BUY THEM BACK FROM THE MARKET AT HOPEFULLY A LOWER PRICE THEN WHAT YOU SOLD THEM.

• YOU MAKE MONEY WHEN THE PRICE OF A STOCK GOES DOWN

• SHORT SELLING = SELLING SHORT = SELLING WHEN THE PRICE IS LOWER

• SHORT SELLING EXPLAINED

EXAMPLE:



STEP 3: DAYS, WEEKS, MONTHS LATER YOUR LENDER ASKS FOR THEIR 100 NKE SHARES BACK.

STEP 4: NKE STOCK HAS GONE DOWN AND YOU REPURCHASE THEM FROM THE MARKET AT $90 A SHARE. (YOUR COST $9,000)

YOU PROFIT $1,000

http://www.investopedia.com/terms/s/shortselling.asp

INVESTING BASICS. A. THE STOCK MARKET STOCKS- UNIT OF OWNERSHIP IN A CORPORATION. STOCKS EXPLAINED.

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Transcript of INVESTING BASICS. A. THE STOCK MARKET STOCKS- UNIT OF OWNERSHIP IN A CORPORATION. STOCKS EXPLAINED.